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					Jadran kapital d.d. and subsidiaries Consolidated and unconsolidated Financial statements for the year ended 31 December 2008 together with Independent auditor‘s report

Contents

Page

Responsibility for the financial statements Independent auditor‘s report Consolidated and unconsolidated income statement Consolidated and unconsolidated balance sheet Consolidated and unconsolidated statement of changes in equity Consolidated and unconsolidated cash flow statement Notes to the financial statements

1 2 3 4 5-6 7 8-34

Jadran kapital d.d. and subsidiaries

Responsibility for the financial statements
Pursuant to the Croatian Accounting Law, the Management Board of Jadran invest d.o.o. (the ―Company‖) is responsible for ensuring that financial statements of Jadran Kapital d.d. (the ―Fund―) and its subsidiaries (the ―Group‖) are prepared for each financial year in accordance with International Financial Reporting Standards (the ―IFRS‖) which give a true and fair view of the state of affairs and results of Jadran Kapital d.d. (the ―Fund‖) and its subsidiaries (the ―Group‖) for that period.

After making enquiries, the Management Board has a reasonable expectation that the Group and the Fund have adequate resources to continue in operational existence for the foreseeable future. For this reason, the Management Board continues to adopt the going concern basis in preparing the financial statements.

In preparing those financial statements, the responsibilities of the Management Board include ensuring that:     suitable accounting policies are selected and then applied consistently; judgments and estimates are reasonable and prudent; applicable accounting standards are followed, subject to any material departures disclosed and explained in the financial statements; and the financial statements are prepared on the going concern basis unless it is inappropriate to presume that the Group and the Fund will continue in business.

The Management Board is responsible for keeping proper accounting records, which disclose with reasonable accuracy at any time the financial position of the Group and the Fund and must also ensure that the financial statements comply with the Croatian Accounting Law. The Management Board is also responsible for safeguarding the assets of the Group and the Fund and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Signed on behalf of the Management Board of Jadran invest d.o.o., fund management company for Fund and Group:

Darije Vladimir Josić President of the Management Board

Berislav Martić Member of Management Board

Mirna Doroteja Zimić Member of Management Board

Jadran invest d.o.o. Savska 141 10 000 Zagreb Republic of Croatia

27 April 2009

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INDEPENDENT AUDITORS’ REPORT To the owners of Jadran Kapital d.d.: We have audited the accompanying consolidated and unconsolidated financial statements of Jadran Kapital d.d. (the ―Fund‖) and of Jadran Kapital d.d. and its subsidiaries (the ―Group‖), which is comprised from consolidated and unconsolidated balance sheet as at 31 December 2008, consolidated and unconsolidated income statement, consolidated and unconsolidated statement of changes in equity and consolidated and unconsolidated cash flow statement for the year then ended, and a summary of significant consolidated and unconsolidated accounting policies and other explanatory notes.

Management’s Responsibility for the Financial Statements
Management of the Jadran invest d.o.o. (the ―Company‖) is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated and unconsolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated and unconsolidated financial statements. The procedures selected depend on the auditor‘s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity‘s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entities‘ internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated and unconsolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion In our opinion the consolidated and unconsolidated financial statements present fairly, in all material respects, the financial position of the Fund and of the Group as at 31 December 2008, and their financial performance and their cash flows for the year then ended in accordance with International Financial Reporting Standards.

Emphasis of matter Without qualifying our opinion we draw your attention to Notes 6 of consolidated financial statements and Note 7 of the unconsolidated financial statements. The value of Group property under note 6 has been revaluated based on the estimates from the independent valuator. The value of investments in subsidiaries has estimated based on the value of the property in each of the subsidiary as explained under note 7 in the absence of readily ascertainable market values. We have reviewed the procedures used by the Group and the Fund in arriving at its estimate of value of such investments and have inspected underlying documentation, and, in the circumstances, we believe the procedures are reasonable and the documentation appropriate. However, because of the inherent uncertainty of valuation and fact that these estimates are based on the information available as at the balance sheet date actual results could differ from those estimates.

Deloitte d.o.o. Branislav Vrtačnik, Certified Auditor Zagreb, Republic of Croatia 27 April 2009

Consolidated and unconsolidated income statement For the year ended 31 December 2008
(All amounts are expressed in thousands of Kunas)

Group Notes Income Gains on purchase of subsidiaries Gain on sale of subsidiaries Interest income on placement with banks Other income 52 933 1,153 367 2,505 Operating expenses Management fee Custody fee Other expenses 3 (2,928) (182) (2.222) (5,332) Realised and unrealised (loss)/ gains Realised (losses)/ gains on securities, net Net foreign exchange differences on cash and cash equivalents 4 (414) (10) (424) (Loss)/ Income before tax Income tax Net (loss)/ income for the year 5 (3,251) (318) (3,569) 2008

Fund 2008

Group 2007

Fund 2007

4,125 1,084 125 5,334

1,614 1,676 438 340 4,068

1,676 434 205 2,315

(2,734) (182) (406) (3,322)

(2,958) (185) (967) (4,110)

(2,764) (185) (396) (3,345)

(424) (10) (434) 1,579 (316) 1,263

7,124 (3) 7,121 7,079 (572) 6,507

7,120 5 7,125 6,095 (572) 5,523

Attributable to the: Parent holder Minority interest (3,494) (75) 6,536 (29) -

The accompanying notes form an integral part of these financial statements.

Signed on behalf of the Company on 27 April 2009: Darije Vladimir Josić President of the Management Board Berislav Martić Member of Management Board Mirna Doroteja Zimić Member of Management Board

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Consolidated and unconsolidated balance sheet As at 31 December 2008
(All amounts are expressed in thousands of Kunas)

Group Notes Assets Property Goodwill Investments in subsidiaries Securities available for sale Placement with banks Accrued interests Prepayments Other assets Cash and cash equivalents 11 7 8 9 9 10 6 58,758 219 6,936 16,035 54 7,509 1,172 90,683 2008

Fund 2008

Group 2007

Fund 2007

60,531 6,936 16,035 54 1,382 1,500 402 86,840

78,894 219 4,304 10,039 27 1,000 237 2,551 97,271

78,135 4,020 10,039 27 1,000 96 597 93,914

Shareholders equity Share capital Treasury shares Revaluation reserves on securities available for sale Revaluation of investment classified as available for sale Revaluation of property Retained earnings Total shareholder equity Minority interest Liabilities Current liabilities Total shareholders equity and liabilities 13 848 90,683 553 86,840 3,600 97,271 2,768 93,914 in subsidiaries 4,899 4,192 86,286 3,549 7,685 1,409 86,289 7,627 6,778 91,363 2,308 11,898 2,290 91,146 12 12 77,057 2,144 (2,006) 77,057 2,144 (2,006) 76,186 142 76,816 -. 142

The accompanying notes form an integral part of these financial statements. Signed on behalf of the Company on 27 April 2009: Darije Vladimir Josić President of the Management Board Berislav Martić Member of Management Board Mirna Doroteja Zimić Member of Management Board

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Consolidated statement of changes in equity For the year ended 31 December 2008
(All amounts are expressed in thousands of Kunas)

Share capital Group

Reserve for treasury share

Revaluation of property t

Revaluation reserves on assets available for sale

Retained earnings

Total

Balance as at 31 December 2006 Share capital paid in Purchased treasury shares Revaluation Net income for the year Balance as at 31 December 2007 Revaluation Sale of property Purchased treasury shares Reserves for treasury shares Net income for the year Balance as at 31 December 2008

76,936 (120) 76,816 302 (61) 77,057 -

-

3,198 4,429 7,627 399

2,143 (2,001) 142 (2,148) -(2,006)

242 6,536 6,778

82,519 2,308 6,536 91,363 (1,447)

2,144 2,144

(3,127) 4,899

3,127

.(61)

(2,144) (3,569) 4,192

(3,569) 86,286

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Unconsolidated statement of changes in equity For the year ended 31 December 2008
(All amounts are expressed in thousands of Kunas)

Share capital Fund

Treasury shares

Revaluation reserves on subsidiaries

Revaluation reserves on assets available for sale

Retained earnings

Total

Balance as at 31 December 2006 Share capital paid in Purchased treasury shares Revaluation Net income for the year Balance as at 31 December 2007 Revaluation Sale of subsidiary Purchased treasury shares Reserves for treasury share Net income for the year Balance as at 31 December 2008

76,936 (120) 76,816 302

-

6,676

2,143

(3,233)

82,522

5,222 11,898 (1,021) (3,192)

(2,001) 142 (2,148) (2,006)

5,523 2,290 (2,144) 1,263 1,409

3,101 5,523 91,146 (1,447) (3,192) (61) .1,263 86,289

(61) 77,057 2,144 2,144

7,685

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Consolidated and unconsolidated Cash flow statement For the year ended 31 December 2008
(All amounts are expressed in thousands of Kunas)

Group Notes Operating activities Profit/(Loss) for the year Interest income Change in minority interest Gain achieved subsidiaries from purchase of 2008

Fund 2008

Group 2007

Fund 2007

(3,569) (1,153) 1,316 (52) (933) -. (4,391) (4,713) (4,843) 1,000 (7,299)

1,263 (1,083) 179 (5,064) (5,585) (382) (1,404) 13,391

6,536 (7,124) 1,363 (1,614) (1,676) -. (2,515) 23,429 6,058 (1,000) (110) 2,152 (23,710) -

5,523 (7,120) (1,676) (3.273) 28,811 6,058 (1,000) (6) (32,529) 2,025 86

Gain achived from sale of property Gain achieved from sale of subsidiaries Gain/(Loss) from operations before changes in working capital (Increase)/ decrease available for sale in securities

(Increase)/ decrease in placement to banks Decrease/ (Increase) in prepayments (Increase)/ decrease in other assets and accrued interest Decrease/ (increase) in subsidiaries (Decrease)/ increase in current liabilities Net cash generated from operating activities Investing activities Change in equipment property, plant and

(2,450) (22,696)

(1,915) (134)

21,378 21,378

-

(27,375) (27,375)

-

Net cash generated from investing activities Financing activities Purchase treasury shares Net cash generated from financing activities DECREASE/ INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR CASH AND CASH EQUIVALENTS AT END OF YEAR

(61) (61) (1.379) 2,551 1,172

(61) (61) (195) 597 402

639 1,912 2,551

86 511 597

The accompanying notes form an integral part of these financial statements.

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Notes to the financial statements For the year ended 31 December 2008
(All amounts are expressed in thousands of Kunas)

1. Activity

GENERAL INFORMATION

Jadran Kapital d.d. registered in Zagreb, Savska cesta 141, is a closed end real estate investment fund with public offering. The fund has been established as a joint – stock company. Subject of business is solely the acquisition of funds through public offerings of its shares and investment of these funds taking in consideration the principles of safety, profitability, liquidity and risk distribution. The duration of the Fund is unlimited. Approval for foundation of the closed investment fund Jadran kapital was issued by Croatian Financial Services Supervisory Agency on 27 April 2006, and it started operating on 12 July 2006.

Management and Supervisory Board The members of the Management Board are as follows: Darije Vladimir Josić Berislav Martić Mirna Doroteja Zimić, from 16 December The members of the Supervisory Board are as follows: Michael Unsworth Mate Babić to 11 September 2008 Marin Mrklić Domagoj Milošević Dubravko Miholić from 11 September 2008 Dubravko Štimac Economic environment The ongoing financial crisis has had an impact on the financial position and performance of the Fund, mainly through the decrease of value of financial assets of the Group and the Fund during 2008. During the year the value of the Group‘s and Fund‘s assets have decreased as a direct consequence of the decline in real estate and capital markets in 2008 . Due to the current crisis in the real estate market and its effects the Group and Fund will probably operate in more difficult and uncertain economic environment in 2009. The impact of this crisis on the Group‘s and Fund‘s business operations is currently not possible to fully predict. Chairman Member Member Member Member Member Chairman Member Member

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Notes to the financial statements For the year ended 31 December 2008
(All amounts are expressed in thousands of Kunas)

1.

GENERAL INFORMATION (CONTINUED)

The Fund management company The Fund is governed by Jadran invest d.o.o., fund management company (the ―Company‖) in accordance with the Fund Statute (the ―Statute‖) and the Investment fund Law (the ―Law‖). The Company was registered on the Commercial court in Zagreb on 13 July 2005. The share capital of the Company is HRK 1,000 thousand entirely paid in money. The Company is responsible for eventual damage committed to the members which occurred due to the violation of the Investment Fund Law and Fund Statute. In accordance with the Law, the Company charges an annual management fee as 3% of net value of the Fund‘s assets enlarged for the tax amount, if any.

Custody bank Under the Law, the Company is to select the Custody bank. In addition to custodian services, and managing a special account for funds asset, the Bank ensures that sales and redemption of shares are in accordance with the Law, applicable regulations and Funds' Prospectus and Statute, maintains securities and other assets transactions as per Company's instructions, and ensures that net assets value calculation of each unit in the Fund is in accordance with the Law, Prospectus and Statute of the Fund. The deposit bank of the Fund is Hrvatska poštanska banka d.d registered in Zagreb, Jurišićeva 4. The Custody Bank is liable to the Company and the unit holders for damage incurred thereto as a result of acting contrary to the Law. Under the Law, the Custody Bank charges a custody fee for its services, calculated annually as 0.15% to 0.20% of the net value of the Fund‘s assets, enlarged for the tax amount, if any.

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Notes to the financial statements For the year ended 31 December 2008
(All amounts are expressed in thousands of Kunas)

1.

GENERAL INFORMATION (CONTINUED)

Investment According to the Prospectus and the Statute of the Fund the investment strategy is as follows:       Up to 60% of the Fund‘s assets will be invested in real estate projects with tourist and/or residential purpose, in order to generate gain in the medium term; Up to 20 % in construction properties or in properties for future construction, in order to generate gain in the long term; Up to 20 % in real estate projects with business and/or commercial purpose; Up to 10% of the Fund‘s assets will be invested in agricultural property; Up to 10% in securities; Up to 30% of the value of the Fund‘s assets will be invested in securities quoted on the stock exchange and/or organized markets of EU and OECD countries, and the rest of the Fund‘s assets will be invested in money deposits, taking into consideration the law limitations; and  Up to 10% of the total value of the Fund‘s assets will be invested in the neighbouring countries such as Bosnia and Herzegovina, Serbia and Montenegro etc. The Board of the Company plan to invest minimally 90% of the Fund‘s assets in Republic of Croatia.

The Fund will invest all the remaining funds which will not be invested in real estate, and with the due attention of a good manager, in money deposits and securities with respect to the principle of risk distribution, and according to the Law and Statute. In case that the Board estimates that certain instabilities on the real estate market occurred, up to 40% of the Fund‘s assets will be invested in money deposits and securities, in order to protect the investors and satisfy the law regulation.

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Notes to the financial statements For the year ended 31 December 2008
(All amounts are expressed in thousands of Kunas)

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

STANDARDS AND INTERPRETATIONS EFFECTIVE IN THE CURRENT PERIOD

The International Accounting Standards Board has published revised International Accounting Standard 39 ―Financial Instruments: Recognition and Measurement‖ (IAS 39). The revised IAS 39 became effective on 1 July 2008. Four Interpretations issued by the International Financial Reporting Interpretations Committee (‗IFRIC‘) are effective for the current period. These are: IFRIC 12 Service Concession Arrangements; IFRIC 13 Customer Loyalty Programs; IFRIC 14 IAS 19 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interactions; IFRIC 16 Hedges of a Net Investment in a Foreign Operation. The adoption of these Interpretations has not led to any changes in the Company‘s accounting policies.

Standards and Interpretations in issue not yet adopted At the date of authorization of these consolidated financial statements, the following Standards and Interpretations were in issue but not yet effective, which do not and will not have any significant impact on the financial statements of the Fund in the period of adoption:
●

IFRS 1 (revised) First-Time Adoption Of International Financial Reporting Standards – Amendment relating to the cost of investment on first-time adoption of IFRSs (effective for accounting periods beginning on or after 1 January 2009)

●

IFRS 2 (revised) Share-based Payments — Amendment relating to vesting conditions and cancellations effective for accounting periods beginning on or after 1 January 2009) IFRS 3 (revised) Business Combinations — Comprehensive revision on applying the acquisition method (effective for accounting periods beginning on or after 1 July 2009)

●

●

IFRS 5 (revised) Non-current Assets Held for Sale and Discontinued Operations– Amendments resulting from May 2008 Annual Improvements to IFRSs (effective for accounting periods beginning on or after 1 July 2009)

●

IAS 1 (revised) Presentation of Financial Statements — Amendments relating to disclosure of puttable instruments and obligations arising on liquidation (effective for accounting periods beginning on or after 1 January 2009)

●

IAS 1 (revised) Presentation of Financial Statements — Amendments resulting from May 2008 Annual Improvements to IFRSs (effective for accounting periods beginning on or after 1 January 2009) IAS 16 (revised) Property, Plant and Equipment — Amendments resulting from May 2008 Annual Improvements to IFRSs (effective for accounting periods beginning on or after 1 January 2009) IAS 19 (revised) Employee Benefits — Amendments resulting from May 2008 Annual Improvements to IFRSs (effective for accounting periods beginning on or after 1 January 2009)

●

●

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Notes to the financial statements For the year ended 31 December 2008
(All amounts are expressed in thousands of Kunas)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Standards and Interpretations in issue not yet adopted (continued)
●

IAS 20 (revised) Government Grants and Disclosure of Government Assistance — Amendments resulting from May 2008 Annual Improvements to IFRSs (effective for accounting periods beginning on or after 1 January 2009)

●

IAS 23 (revised) Borrowing Costs — Amendments resulting from May 2008 Annual Improvements to IFRSs (effective for accounting periods beginning on or after 1 January 2009) IAS 27 (revised) Consolidated and Separate Consolidated financial statements — Consequential amendments arising from amendments to IFRS 3 (effective for accounting periods beginning on or after 1 July 2009)

●

●

IAS 27 (revised) Consolidated and Separate Financial Statements — Amendment relating to cost of an investment on first-time adoption (effective for accounting periods beginning on or after 1 January 2009)

●

IAS 27 (revised) Consolidated and Separate Financial Statements — Amendments resulting from May 2008 Annual Improvements to IFRSs (effective for accounting periods beginning on or after 1 January 2009)

●

IAS 28 (revised) Investments in Associates — Consequential amendments arising from amendments to IFRS 3 (effective for accounting periods beginning on or after 1 July 2009)

●

IAS 28 (revised) Investments in Associates (effective for accounting periods beginning on or after 1 January 2009) IAS 29 (revised) Financial Reporting in Hyperinflationary Economies — Amendments resulting from May 2008 Annual Improvements to (effective for accounting periods beginning on or after 1 January 2009)

●

●

IAS 31 (revised) Interests in Joint Ventures — Consequential amendments arising from amendments to IFRS 3 (effective for accounting periods beginning on or after 1 July 2009) IAS 31 (revised) Interests in Joint Ventures — Amendments resulting from May 2008 Annual Improvements to IFRSs (effective for accounting periods beginning on or after 1 January 2009) IAS 32 (revised) Financial Instruments: Presentation — Amendments relating to puttable instruments and obligations arising on liquidation (effective for accounting periods beginning on or after 1 January 2009)

●

●

  

IAS 36 Impairment of Assets — Amendments resulting from May 2008 Annual Improvements to IFRSs (effective for accounting periods beginning on or after 1 January 2009) IAS 38 (revised) Intangible Assets — Amendments resulting from May 2008 Annual Improvements to IFRSs (effective for accounting periods beginning on or after 1 January 2009) IAS 39 (revised) Financial Instruments: Recognition and Measurement — Amendments resulting from May 2008 Annual Improvements to IFRSs (effective for accounting periods beginning on or after 1 January 2009)

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Notes to the financial statements For the year ended 31 December 2008
(All amounts are expressed in thousands of Kunas)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Standards and Interpretations in issue not yet adopted (continued)    IAS 39 (revised) Financial Instruments: Recognition and Measurement — Amendments for eligible hedged items (effective for accounting periods beginning on or after 1 July 2009) IAS 40 (revised) Investment Property — Amendments resulting from May 2008 Annual Improvements to IFRSs (effective for accounting periods beginning on or after 1 January 2009) IAS 41 (revised) Agriculture — Amendments resulting from May 2008 Annual Improvements to IFRSs (effective for accounting periods beginning on or after 1 January 2009)

The Management Board anticipates that all of the above revision of the Standards will be adopted in the Group‘s financial statements for the year commencing 1 January 2009 and that the adoption of those revisions will have no material impact on the financial statements of the Group in the period of initial application.

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Notes to the financial statements For the year ended 31 December 2008
(All amounts are expressed in thousands of Kunas)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Basis of presentation The financial statements are prepared in accordance with International Financial Reporting Standards (the ―IFRS‖) issued by International Accounting Standards Board. The financial statements are presented for the Group (the ―consolidated financial statements) and the Fund only (the ―unconsolidated financial statements‖). The Group maintains its books of accounts and prepares financial statements for regulatory purposes in accordance with the regulations of the Croatian Agency for Supervision over financial institutions (―HANFA‖). The accompanying financial statements are based on the accounting records of the Fund and entities controlled by the Fund, together with appropriate adjustments and reclassifications necessary for fair presentation in accordance with IFRS. Basis of preparation The financial statements have been prepared on the historical cost basis except for the revaluation of certain non-current assets and financial instruments. The principal accounting policies are set out below. The financial statements are presented in thousands of kuna (the ―HRK‖), unless otherwise indicated.

Basis of consolidation The consolidated financial statements incorporate the financial statements of the Fund and entities controlled by the Fund (its subsidiaries). Control is achieved where the Fund has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation.

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Notes to the financial statements For the year ended 31 December 2008
(All amounts are expressed in thousands of Kunas)

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Basis of consolidation (continued) Minority interests in the net assets (excluding goodwill) of consolidated subsidiaries are identified separately from the Group‘s equity therein. Minority interests consist of the amount of those interests at the date of the original business combination and the minority‘s share of changes in equity since the date of the combination. Losses applicable to the minority in excess of the minority‘s interest in the subsidiary‘s equity are allocated against the interests of the Group except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses.

Business combinations Acquisitions of subsidiaries are accounted for using the purchase method. The cost of the business combination is measured as the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree‘s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 Business Combinations are recognized at their fair values at the acquisition date, except for non-current assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, which are recognized and measured at fair value less costs to sell. The interest of minority shareholders in the acquiree is initially measured at the minority‘s proportion of the net fair value of the assets, liabilities and contingent liabilities recognized.

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Notes to the financial statements For the year ended 31 December 2008
(All amounts are expressed in thousands of Kunas)

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Goodwill Goodwill arising on the acquisition of a subsidiary or a jointly controlled entity represents the excess of the cost of acquisition over the Group‘s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the subsidiary or jointly controlled entity recognized at the date of acquisition. Goodwill is initially recognized as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill is allocated to each of the Group‘s cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognized for goodwill is not reversed in a subsequent period.

On disposal of a subsidiary or a jointly controlled entity, the attributable amount of goodwill is included in the determination of the income statement on disposal

Accounting for investments in subsidiaries in the separate financial statements of the Fund Investments in subsidiaries are accounted at fair value in the unconsolidate financial statements of the Fund. The Fund recognises its investments in subsidiaries as securities classified as available for sale. (please refer to accounting policy for securities).

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Notes to the financial statements For the year ended 31 December 2008
(All amounts are expressed in thousands of Kunas)

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Interest income

Interest income is recognized in the income statement for all interest bearing instruments on an using effective interest rate. Interest income includes coupons earned on fixed interest bearing securities, bonds and accrued discount on treasury and commercial papers, floating rate notes and other financial instruments based on fair value through income statement and available for sale. Interest income related to the foreign exchange financial assets includes foreign exchange differences arising from movements in foreign exchange rates.

Fund management and other costs

Costs chargeable to the Fund's assets are as follows:
             Investment Fund management fee: calculated as 3 % per annum of the Fund's net assets, increased by tax, if any; Custody fee: calculated from 0.15% to 0.20% per annum of the Fund's net assets, depending on the volume of the Fund, increased by tax, if any; Fees and reimbursements of cost to the Fund Supervisory Board Members; Costs, commissions or other duties directly attributable to acquisition or sale of the Fund's assets; Share Register maintenance fees and charges, and costs related to dividend payments; Audit and attorney fees, and other professional fees related to Fund‘s ordinary operations and not to the Company‘s operations; Preparation, printing and postage charges in connection with the publication and delivery of reports to the shareholders of the Fund as specified by Law and the Prospectus; Costs of General Shareholders' Meeting, except for extraordinary meetings convoked by the Company, in which case such costs are borne by the Company; All prescribed fees and duties payable to the Supervisory body in connection with the issuance of the approval to the Fund; Costs attributable to the listing of the Fund's shares on a stock exchange or an organized market, and the quotation related costs; Taxes payable by the Fund in accordance with positive regulations of the Republic of Croatia with respect to the Fund's assets and/or profit from operations; Costs of mandatory advertising; and Other costs specified by separate Laws (costs of Supervisory body).

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Notes to the financial statements For the year ended 31 December 2008
(All amounts are expressed in thousands of Kunas)

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Income tax

Non-current assets held-for-sale Non-current assets are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition.

Property and equipment Land and buildings used in production or delivery of goods or services, or in administrative purposes, are stated in the balance sheet at their revalued amounts, being the fair value at the date of revaluation, less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Revaluations are performed with sufficient regularity such that the carrying amounts do not differ materially from those that would be determined using fair values at the balance sheet date.

Any revaluation increase arising on the revaluation of such land and buildings is credited in equity to the properties revaluation reserve, except to the extent that it reverses a revaluation decrease for the same asset previously recognized in profit or loss, in which case the increase is credited to income statement to the extent of the decrease previously charged. A decrease in the carrying amount arising on the revaluation of such land and buildings is charged to income statement to the extent that it exceeds the balance, if any, held in the properties revaluation reserve relating to a previous revaluation of that asset.

Depreciation on revalued buildings is charged to profit or loss. On the subsequent sale or retirement of a revalued property, the attributable revaluation surplus remaining in the properties revaluation reserve is transferred directly to retained earnings. No transfer is made from the revaluation reserve to retained earnings except when an asset is derecognized.

Jadran kapital d.d. and subsidiaries

19

Notes to the financial statements For the year ended 31 December 2008
(All amounts are expressed in thousands of Kunas)

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Property and equipment (continued) The carrying amounts of fixed and intangible assets are reviewed at each balance sheet date to assess whether they are recorded in excess of their recoverable amounts. Where carrying values exceed this

estimated recoverable amount, assets are written down to their recoverable amount. An impairment is recognized in the respective period and is included in operating expenses. After the recognition of an impairment loss the depreciation charge for fixed assets is adjusted in future periods to allocate the assets‘ revised carrying value, less its residual value (if any), on a systematic basis over its remaining useful life.

Securities Securities are recognized and derecognized on trade date where the purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value, plus transaction costs, except for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value. Securities are classified into the following specified categories: securities ‗at fair value through profit or loss‘ (the ―FVTPL‖), ‗held-to-maturity‘ investments, ‗available-for-sale‘ (―AFS‖) securities and ‗loans and receivables‘. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. Securities available for sale Securities available for sale are stated at fair value. Gains and losses arising from changes in fair value are recognized directly in equity in the investments revaluation reserve with the exception of impairment losses, interest calculated using the effective interest method and foreign exchange gains and losses on monetary assets, which are recognized directly in profit or loss. Where the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously recognized in the investments revaluation reserve is included in income statement for the period. Dividends on AFS equity instruments are recognized in profit or loss when the Fund‘s and Group‘s right to receive the dividends is established. The fair value of AFS monetary assets denominated in a foreign currency is determined in that foreign currency and translated at the spot rate at the balance sheet date. The change in fair value attributable to translation differences that result from a change in amortized cost of the asset is recognized in profit or loss, and other changes are recognized in equity. Loans and receivables Trade receivables, loans, placements, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Loans and receivables are measured at amortized cost using the effective interest method, less any impairment. Interest income is recognized by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial. Jadran kapital d.d. and subsidiaries 20

Notes to the financial statements For the year ended 31 December 2008
(All amounts are expressed in thousands of Kunas)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Impairment of securities Securities classified as loans and receivables and securities available for sale, are assessed for indicators of impairment at each balance sheet date. Securities are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted. For unlisted shares classified as AFS, a significant or prolonged decline in the fair value of the security below its cost is considered to be objective evidence of impairment. For all other securitieds, including redeemable notes classified as AFS and finance lease receivables, objective evidence of impairment could include: • significant financial difficulty of the issuer or counterparty; or • default or delinquency in interest or principal payments; or • it becoming probable that the borrower will enter bankruptcy or financial re-organisation. For securities carried at amortised cost, the amount of the impairment is the difference between the asset‘s carrying amount and the present value of estimated future cash flows, discounted at the financial asset‘s original effective interest rate. The carrying amount of the securities is reduced by the impairment loss directly. With the exception of AFS equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised. In respect of AFS equity securities, impairment losses previously recognised through profit or loss are not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is recognised directly in equity.

Cash and cash equivalents Cash and cash equivalents comprise balances on the current account and foreign account balances with banks and cash in hand.

Jadran kapital d.d. and subsidiaries

21

Notes to the financial statements For the year ended 31 December 2008
(All amounts are expressed in thousands of Kunas)

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Use of estimates in the preparation of the financial statements The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and their reported amounts of revenues and expenses during the reporting period. These estimates are based on the information available as at the balance sheet date and actual results could differ from those estimates.

Valuation of property The Group is revaluating its property on quarterly basis. The property is revaluated based on the estimates done by the independent valuators. The Group is using several valuators and determining the revaluation amount as average of three valuations.

Valuation techniques for investment in subsidiaries The Fund is evaluating its subsidiaries on quarterly basis. The subsidiaries are real estate companies with significant portion of assets in the land and property. Fair value of the subsidiaries is determined based on the estimated value of these land and property. Estimated amounts of land and property are determined by independent valuators and the Fund is using average of three valuations done to determine the fair value.

Jadran kapital d.d. and subsidiaries

22

Notes to the financial statements For the year ended 31 December 2008
(All amounts are expressed in thousands of Kunas)

3.

OTHER EXPENSES

Group 2008

Fund 2008

Group 2007

Fund 2007

Notary services Supervisory board expenses Valuator expenses Accounting expenses Receivables for VAT in subsidiaries Other expenses*

241 194 203 318 975 291 2,222

11 194 4 197 406

159 194 28 297 289 967

19 194 28 155 396

4.

REALISED (LOSSES)/ GAINS ON SECURITIES, NET

Group 2008

Fund 2008

Group 2007

Fund 2007

Realised gain on sale of securities available for sale Realised loss on sale of securities available for sale

10 (424) (414)

(424) (424)

7,214 (90) 7,124

7,210 (90) 7,120

The Group and the Fund achieved realized gain/ losses from sale of units in the investment fund that have been classified as available for sale. For details on units classified as available for sale please refer to note 8.

Jadran kapital d.d. and subsidiaries

23

Notes to the financial statements For the year ended 31 December 2008
(All amounts are expressed in thousands of Kunas)

5.

INCOME TAX

Tax is calculated in accordance with Croatian Tax law. Applicable tax rate for the year ended 31 December 2008 was 20% (2007: 20%).

Group 2008

Fund 2008

Group 2007

Fund 2007

Income/(loss) before tax Tax expense Tax loss brought forward Tax expenses according to the Tax Law

(3,251) 318 318

1,579 316 316

6,507 4,195 (4,253) 572

6.095 6,095 (3,233) 572

Although the Group achieved a loss of HRK 3,251 thousand at the end of 2008 it still had tax expenses of HRK 318 thousand that relates to the tax losses achieved by the subsidiaries and the parent Company. Under the tax regulation in Republic of Croatia the members of the Group can not utilities tax losses of other members in the Group. 6. PROPERTY Asset under construction

Land Group Cost Balance as at 31 December 2006 Additions Disposal Revaluation Balance as at 31 December 2007
Disposal Revaluation Balance as at 31 December 2008

Total

44,045 31,385 (8,698) 4,429 71,161 (22,643) 8,961 57,479

94 7,723 (84) 7,733 (6,454) 1,279

44,139 39,108 (8,782) 4,429 78,894 (29,097) 8,961 58,758

The Fund had no property plant and equipment as at 31 December 2008 and 2007.

Jadran kapital d.d. and subsidiaries

24

Notes to the financial statements For the year ended 31 December 2008
(All amounts are expressed in thousands of Kunas)
7. INVESTMENT IN SUBSIDIARIES

The Fund as at 31 December 2008 had following investments:

Ownership Interest

Activity

Share of net assets as at 31 December 2007

Revaluation per investment

Share of net assets as at 31 December 2008

Subsidiary Stanovi Jadran d.o.o. Samoborske vile d.o.o. Licko selo d.o.o. Vile Orašac d.o.o. Mediteran gradnja d.o.o. Nova nekretnine d.o.o. Peškarija d.o.o. Stanovi Jadran d.o.o. Zelena vala projekt d.o.o. Malojan d.o.o. 94% 97% 100% 93% 78% 100% 100% 100% 56% Real estate Real estate Real estate Real estate 11,008 10,080 5,071 7,721 4,885 2,685 7,861 11,008 3,978 78,135 742 470 1,397 1,185 351 563 1,337 2,701 216 8,962 15,647 5,059 7,672 5,111 3,392 7,936 10,221 4,621 1,617 60,531

Real estate Real estate Real estate Real estate

Real estate Real estate

During the 2008 the Fund had acquired one new subsidiary Malojan and , subsidiary Vrhovčak was merged with subsidiary Samoborske vile, subsidiary Jarun Novi was sold and the profit of 4,125 thousand kuna was recognized, recognized gain for purchase of subsidiary Malojan 52 thousand HRK. The income achieved on sale of Jarun Novi d.o.o. was as follows:
Net asset value at the date of the sale 21,890

Date of sale Jarun Novi d.o.o 22.2.2008

Counterparty Jarun Prima

Sale proceeds 22,824

Net gain from sale of assets 934

The value of revaluation reserves at the date of sale was HRK 3,192 thousand. That amount has been recognized directly to equity. The Fund recognized income on purchase of following subsidiaries:
Ownership Interest Malojan d.o.o 56% Share of net assets at date of acquisition 1,052 1,052 Investment at cost 1,000 1,000 Income from acquisition 52 52

Activity Real estate

Jadran kapital d.d. and subsidiaries

25

Notes to the financial statements For the year ended 31 December 2008
(all amounts are in thousands of Kuna)

8.

SECURITIES AVAILABLE FOR SALE Group 2008 Fund 2008 2,042 4,894 6,936 Group 2007 1,586 2,718 4,304 Fund 2007 1,586 2,434 4,020

Shares in closed end funds Units in open end investment funds

2,042 4,894 6,936

Units in closed end funds Investment fund Activity Number of shares 15,000 2,000 1,800 10,000 2008 2007 1,386 200 1,586

Fima Proprius d.d. Učka Marijan d.d. Questus HPB Real

Real estate Real estate Real estate Real estate

735 140 164 1,003 2,042

Units in open end investment fund Investment fund Number of units 2008 2007

RBA Balanced AC Rusija Erste Money OIF - udjel ZB Global OIF - udjel ZB Plus Aureus Equity Aureus Balanced OTP Indeksni fond HPB Novčani fond HPB Global Fima-global ecquity

53,2906 2.228,8902 8.913,2552 33,6100 7.108,0733 1.249,8155 2.027,6488 5.107,8985 8.886,2586 4.359,5558 838,6458

52 635 1,115 30 1,040 119 173 179 1,043 416 92 4,894

102 815 566 48 240 1,771

Jadran kapital d.d. and subsidiaries

26

Notes to the financial statements For the year ended 31 December 2008
(all amounts are in thousands of Kuna)

9. PLACEMENT WITH BANKS Placements in banks relate to the deposits that Fund had as at 31 December 2008 and 31 December 2007. Bank Varaždinska banka d.d. Erste-banka d.d. Centar banka d.d. Nava Hypo Varaždinska banka d.d. Hrvatska poštanska banka d.d Hrvatska poštanska banka d.d Centar banka d.d. Karlovačka banka Karlovačka banka Karlovačka banka Nominal value 500 2,091 1,025 2,500 3,000 500 2,000 1,000 1,000 800 800 800 16,016 Interest rate (%) 7.5 7.5 7 9 7.5 7.5 7 7 6.8 6 6 6 02.01.2009 22.3.2009 13.1.2009 5.1.2009 22.1.2009 26.1.2009 23.1.2009 26.1.2009 20.1.2009 12.1.2009 14.1.2009 14.1.2009 Maturity Accrued interest 3 4 4 17 6 1 3 1 2 4 4 4 53 2008

500 2,091 1,025 2,500 3,000 500 2,000 1,000 1,000 807 806 806 16,035

Nominal Bank
Varaždinska d.d. banka

value
1.000 2.000 2.000 500 500 2.000 2.000

Interest rate(%)
4.5 5.0 5.0 5.3 5.2 4.8 4.8

Maturity

Accrued interest
1

2007

01.01.2008 01.01.2008 01.01.2008 14.01.2008 01.01.2008 18.01.2008 01.01.2008

1,012 2 9 5 5 500 2,000 5 27 2,028 10,039 2,000 2,000 500

Erste-banka d.d. Štedbanka d.d. Centar banka d.d. Hrvatska poštanska banka d.d. Hrvatska poštanska banka d.d. Centar banka d.d.

Jadran kapital d.d. and subsidiaries

27

Notes to the financial statements For the year ended 31 December 2008
(all amounts are in thousands of Kuna)

10.

PREPAYMENTS

The Fund provided a down payment for purchase of property from company Novi Centar d.o.o. in Sisak. The agreement for purchase of property has been signed on 16 May 2007 for EUR 800 thousand, and the Fund paid the down payment of 500 thousand EUR (3,663 thousand HRK). In accordance with the Agreement Novi Centar was obligated to provide general urban plan within the period of one month. In case they succeed the Fund would complete the payment or funds would be returned. The Fund received the Funds in the amount of 2,663 thousand HRK plus compensation in the amount of 110 thousand HRK, and Agreement in the amount of 1,000 HRK as down payment for possible purchase of the land for the same price in case the general urban plan is provided by the end of 2008. The Novi Centar d.o.o. did not obtain the plan so the Fund claims the payment of the down payment with interest in 2009.

11.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents of the Fund and the Group as at 31 December 2008 in the amount of HRK 402 thousand HRK and 1,172 thousand HRK (2007: 597 and 2,551 thousand) refer to the HRK accounts in banks.

12.

SHARE CAPITAL

Shareholders structure as at 31 December 2008:
2008 Percentage of ownership % MERRILL LYNCH INTERNATIONAL LTD. Maple Leaf (Canada) FINASTA (Litva) PBZ/PBZ/SP RAIFFEISEN BANK AUSTRIA ZAGREBZBIRNI SKRBNIČKI RAČUN SOCIETE GENERALE ZBIRNI RAČUN SPL BANKA 5.62% 5.48% 5.05% 4.51% 3.53% 2.90% 23.37% 2.65% 100% 4,450 4,338 4,000 3,573 2,796 2,291 1,847 2,104 79,163 5.48% 43.98% 2.8% 100% 4,363 35,015 2,228 79,614 27.54% 13.03% 6.32% 21,800 103,16 5010 Nominal value of capital 2007 Percentage of ownership % 27.54% 14.14% 6.06% 21,926 11,257 4,825 Nominal value of capital

GLG EUROPEAN OPPORTUNITIES ZABA ZBIRNI SKRBNIČKI RAČUN GLG FINANCIAL FUNDS ERSTE & STEIERMERKISCHE/CSC HPB GLOBAL Ostali Trezorske dionice

Jadran kapital d.d. and subsidiaries

28

Notes to the financial statements For the year ended 31 December 2008
(all amounts are in thousands of Kuna)

13.

CURRENT LIABILITIES
Group 2008 Fund 2008 Group 2007 Fund 2007

Trade payables Management fee payable Tax liabilities Supervisory board expenses Accrued expenses Other liabilities

253 99 316 48 88 44 848

14 99 316 48 77 554

2,407 236 572 48 51 286 3,600

1,861 236 572 48 51 2,768

14.
Group

RELATED PARTY TRANSACTIONS
Expenses 2008 Assets 2008 Liabilities 2008

The Company Supervisory board Custody bank

-

-

-

Group

Expenses 2007

Assets 2007

Liabilities 2007

The Company Supervisory board Custody bank

2,764 194 185 3,143

-

236 48 284

Jadran kapital d.d. and subsidiaries

29

Notes to the financial statements For the year ended 31 December 2008
(all amounts are in thousands of Kuna)

14.

RELATED PARTY TRANSACTIONS (CONTINUED)

Fund

Expenses 2008

Assets 2008 15,647 7,672 1,617 5,059 5,111 2,646 7,936 10,221 4,662 60,531

Liabilities 2008 99 48 147

Jadran invest d.o.o. Supervisory board Custody bank Samoborske vile d.o.o . Vile Orašac d.o.o. Malojan d.o.o. Ličko selo d.o.o. Mediteran gradnja d.o.o. Nova nekretnine Peškarija d.o.o. Stanovi Jadran d.o.o Zelena vala projekt d.o.o.

2,734 194 182 3,110

Fund

Expenses 2007

Assets 2007 2,945 10,080 7,721 21,901 5,072 4,885 2,685 7,861 11,008 3,978 78,136

Liabilities 2007 236 48 284

Jadran invest d.o.o. Supervisory board Custody bank Vrhovčak d.o.o. Samoborske vile d.o.o. Vile Orašac d.o.o. Jarun novi d.o.o. Ličko selo d.o.o. Mediteran gradnja d.o.o. Nova nekretnine Peškarija d.o.o. Stanovi Jadran d.o.o. Zelena vala projekt d.o.o.

2,764 194 185 3,143

Jadran kapital d.d. and subsidiaries

30

Notes to the financial statements For the year ended 31 December 2008
(all amounts are in thousands of Kuna) 15. PRESENTATION OF FUND INFORMATION ACCORDING TO LEGAL REQUIRMENTS

According to a. 175 of Investment funds Law, set out in table below are required disclosure: a) Total expenses indicator for accounting period 2008 in 000 HRK Management fee Custody fee Supervisory board expenses Central depository agency expenses Stock exchange fees Other expenses Total expenses* Average annual net asset value of the Fund Share of expenses in the average annual net asset value of the Fund (in %) 3,00 0,05 0,21 0,01 0,03 0,20 3,50 90,647 3,5% % 3,00 0,20 0,21 0,02 0,04 0,13 3,60 100

* total expenses of the Fund were 312 thousand: Jadran Invest d.o.o. refunded the amount of 125 thousand, so decreased total is 187 thousand

b) Fund annual volume of trading with any of the broker companies has not exceeded 10%. c) Highest and lowest Funds assets value and unit price within comparable accounting periods over the last five years:

2008

2007

Highest fund asset value (in 000 HRK) Lowest fund asset value (in 000 HRK) Highest price per share in fund (in HRK) Lowest price per share in fund (in HRK)

93,639 86,286 118,29 111,97

94,526 86,903 119.41 109.78

Jadran kapital d.d. and subsidiaries

31

Notes to the financial statements For the year ended 31 December 2008
(all amounts are in thousands of Kuna) 15. PRESENTATION OF FUND INFORMATION ACCORDING TO LEGAL REQUIRMENTS (CONTINUED) d) Management report with business results of the Fund, change in portfolio and planned investment strategy for the following period explanations

In the view of the management, the actual results versus the benchmark analysis are more than satisfactory, given the early stage of the Fund (no construction on the purchased plots that is at a high level of preparation). The current NAV and the changes in the portfolio (the disposal of Savska projekt d.o.o. and Jarun Novi d.o.o.) show that the estimated values are very close to the market values and, therefore, we conclude that the portfolio is secure, well-balanced and highly liquid.

Considering the developments on the financial markets in the meantime, the management intends to maintain a strong position in deposits, by closely monitoring the trends on the real estate and financial markets in the Republic of Croatia.

Furthermore, the management intends to continue with the diversified investment model (coastal vs. continental; residential vs. tourist) based on the market opportunities and to focus in 2009 on the structuring of the construction projects, implementation of detailed construction project development and supervision procedures, which were developed during 2008.

Following the analyses, the management has established that there are both reasons and prerequisites to increase the share capital of the Jadran kapital fund during 2008 and intends to take appropriate steps as provided by the law and internal regulations, as well as to start the preparations for the capital increase. e) Comparative overview of operations in last two years

2008

2007

Total asset net value (in 000 HRK) Net asset value per share (in KN) Total expenses indicator (in %)

86,286,909.80 111,97 3,5%

93,953 118.68 3.60%

As at 31 December 2008 and 2007 the Fund was in compliance with all of legal requirements.

Jadran kapital d.d. and subsidiaries

32

Notes to the financial statements For the year ended 31 December 2008
(all amounts are in thousands of Kuna)

16.

FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

The Fund and Group are primarily exposed to market risks and other risks in connection with real estate management, securities management and the Fund's and Group s obligations and its operations. Other risks to which the Fund and Group are exposed include liquidity risk and credit risk, followed by operational risk and business risks, such as reputation risk, political risk, settlement risk and counterparty risk. The Fund and Group has analyzed risk and quantify its effect on the Fund and Group for the year ended 31 December 2008.

Market risk
Market risk is the risk of potential loss (decrease in the value of the Fund's and Group's assets) resulting from currency exchange rates, movements in interest rates and fluctuations in security and real estate prices. The fund measures its market risk through sensitivity analysis where it analysis effects of the changes in interest rate or fluctuation of security prices and other parameters. Fund manages its market risk through diversification of its portfolio of the Fund and Group. The Fund and the Group are primarily exposed to the risk in the real estate prices. As shown in table below the 69,7% of assets are real estate. The fluctuation of 10% could increase or decrease the value of Fund for around HRK 6 million that represent significant influence on the Fund position.
Assets (HRK 2008) Real estate Shares Open funds end investment 60,531,430.65 2,042,280.00 4,891,182.97 15,035,268.83 cash 401,519.46 3,936,449.69 Percentage in net assets% 2008 69,7 2,4 5,6 17,3 0.5 4,5 Assets (HRK 2007 Percentage in net assets% 2007

78.134.999,46 3.933.940,00 2.433.691,89 10.039.449,39 596.651,18 1.027.987,37

81,25 4,1 2,53 10,44 0,62 1,07

Deposits Cash and equivalents Receivables

The change in the price of the investment in fund units of 10% would effect the result of the fund approcimately for HRK 690 thousand.

Currency risk
The entire assets and liabilities of the Fund and the Group are denominated in HRK so that Fund is not exposed to the currency risk.

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33

Notes to the financial statements For the year ended 31 December 2008
(all amounts are in thousands of Kuna) 17. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

Interest rate risk
The Fund and Group are exposed to risks associated with the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows. The significant portion of the Fund's assets are deposits in banks (17.3% of total assets) and the fluctuation of the interest rates could effect the value of deposits. Due to the short maturities of deposits the effect of changes in interest rates would not be material.

The financial statements were signed by the Management Board and authorized for issue on 27 April 2009.

Darije Vladimir Josić President of the Management Board

Berislav Martić Member of Management Board

Mirna Doroteja Zimić Member of Management Board

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34


				
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